Spirit of boom-time mortgages lives on in Europe

August 19, 2013|Reuters

By Karolina Tagaris and Natalia Drozdiak

ATHENS/BERLIN, Aug 18 (Reuters) - Remember the days when youcould take a mortgage big enough to buy the house and furnishit, a car to park outside and a holiday to celebrate - all on arepayment schedule that only Methuselah could honour?

Those days have never gone away in pockets of Europe.

While countries like Spain and Ireland battle to reform theboom-era mortgage lending that has left millions of borrowers atrisk of losing their homes, corners of the continent betterknown for their sturdy finances seem to be still lending as ifthe financial crisis never happened.

In the AAA-rated Netherlands, home to one of the earliestand biggest bailouts of the crisis - ABN Amro's 2008 rescueultimately cost 30 billion euros - first-time buyers can stillborrow up to 105 percent of the value of their new home and canget up to five and a half times their gross salary.

A deflating housing bubble means the Dutch government is nowcutting back on some of the riskier mortgage products so themaximum amount lent will fall by 2018, but still only to 100percent.

And in AAA-rated Sweden, a mortgage will outlast theyoungest buyer, and their grandchildren.

Such disparities show the lack of coherence in the 28lending markets that will become part of the region's grandbanking union, which is designed to create a more harmonisedfinancial system, though it is unlikely to have a direct impacton access to credit for citizens.

In Greece, banks will now only fund 70 percent of the houseprice compared with 100 percent before the crash, putting homepurchase beyond the reach of most after six years of recession.

With an unemployment rate of nearly 27 percent, twice theeuro zone average, young Greeks have to rent, if they can, orlean upon the hospitality of their parents - an uncomfortablecompromise in a country that traditionally has had one of thehighest home ownership rates in Europe.

"You have dreams and plans of starting a life together, andthen reality hits you," said Vasiliki Dimitriadou, who liveswith her husband in her parents' small, three-bedroom apartmentin Athens.

Vasiliki, 32, lost her job at a nursery a year ago, and herhusband, who works at a small construction company, fears forhis job, too. Without cash, they can't afford to rent, let alonebuy.

"There were things we took for granted, like having your ownhouse, that are now a luxury," she said. "I don't see any light,our generation has been destroyed."

FORENSIC LENDING

In Ireland, where the housing collapse all but took thecountry with it, lenders are taking a much tougher line.

Where once a borrower could take up to five times grosssalary, banks are now offering two to three times net income.The maximum loan is capped at 92 percent of the price of thehouse, down from pre-crisis peaks of 120 percent.

Transactions that used to be completed in four weeks nowtake three times as long.

"In the boom time there was no paperwork ... You'd tell thebank what your salary was and they wouldn't check up on it,"said one Dublin-based broker. "Now it's all about the paperwork.You should see our files. It is like 'Lord of the Rings'."

Bailed-out Permanent TSB, once Ireland's biggest mortgagelender, has been leading the paperwork charge by getting allborrowers to fill out a household expenditure form to see ifthey can really afford the repayments.

Red flags for all the banks include pre-school kids -monthly creche fees can top 800 euros a month in parts of Dublin- and any hint of online gambling, said the broker.

"The buzzword now is 'forensic lending'. Back during theboom it was, 'How much do you want?'," he said.

CIVIL SERVANTS SOUGHT

In Europe's periphery, home ownership is more culturallyingrained, with around 80 percent of people in Greece and Spainowning their home, compared with a 70 percent EU average,according to the European Mortgage Federation.

With lending standards tightening and unemploymentstubbornly high in both countries, that looks certain to drop.

"We've gone from a world in which mortgages were dispatchedas easily as someone going into a bakery to buy a loaf of bread,to the complete opposite," said Pedro Javaloyes, director offamily financing research at Madrid-based mortgage brokerAgencia Negociadora.

"Banks are now focused on your minimum income. They wantpeople in certain jobs; civil servants are very highly prized,for example."

Where once, loans were made for 50 or 60 years, terms arenow capped at 40 years, Javaloyes said, while loan-to-valueratios have fallen from 110 percent to 70 percent, or 80 percent"on rare occasions".

In Italy, where 72 percent of people own their homes,mortgage lending fell by 37 percent in 2012, according to theItalian statistics office, as the country reels from its longestrecession since World War Two.

Borrowers in Italy now borrow an average of just 50 percentof their property's price, though some banks continue to offer40-year mortgages.